After three sessions of correction in US equities, the Dow Jones is attempting a comeback.
The move comes in the shadow of what had been a heavily risk-on pre-FOMC environment, where expectations for rate cuts kept fueling a wave of optimism across markets.
Despite the best efforts of today’s US GDP report, which upgraded Q2 growth estimates by some margin, US equities trade lower in today’s session and look to set to continue a three-day losing streak.
US Equities keep up their positive performance with each of them finishing at or close to their highs, with the Tech-heavy Nasdaq taking the lead yet again.
With the most recent Federal Reserve cut and positive acquisition news as seen in yesterday's US Index piece, sentiment is at its highs again.
US equities broke one more record before the widely awaited Federal Reserve (Fed) decision, while the Stoxx 600 fell more than 1% as rate-sensitive sectors including banks and insurers led the index lower.
Investors lapped up Jerome Powell's words like honey on Friday, as the man has apparently been troubled enough by the latest weakness in jobs numbers to say that this situation "suggests that downside risks to employment are rising" and that "if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment." And no one wants that to happen – especially after heavy criticism from the White House pointing at Powell as Mr. Too Late.
Friday's meeting between Trump and Putin seems to have gone smoothly. Details are scarce, but so far there are no signs of fresh tensions with Russia and no new sanctions on countries such as China and India that continue buying Russian oil. US crude opened the week with a gap lower but has since recovered part of its losses. Direction remains uncertain, though the absence of immediate stress is notable.
Trump extended the tariff truce with China – which was set to expire today – by 90 more days, announced that gold will finally not be tariffed, and confirmed that Nvidia and AMD will pay the US government a 15% cut of their Chinese sales.
Stronger seasonals, lower rates and oversold momentum indicators support our call for a tradeable rally from ~5500. A weaker dollar and stabilizing Mag 7 EPS revisions can drive capital back to the US. Beyond the tactical rally, volatility will likely persist this year.
Hopes and fears surrounding US tariffs continue to keep the market on its toes. Yesterday, the hope that the next wave of US tariffs would finally be more limited and targeted, combined with a very solid US services ISM report, fuelled a rebound by US risk assets (led by US techs) and the US dollar, and pushed US bond yields higher in a pro-growth configuration.
A strong finish to last week by US equities helped buoy investor sentiment at the start of this week in Asia. Upside surprises in China’s cyclical data also helped boost investor sentiment. Holding back sentiment, however, were US Treasury Scott Bessent suggesting the recent US equity market rout was a healthy correction and weak Chinese house prices data showing the sector was still in a slump.
